Truist Financial Corporation ($TFC)

Okay. Good morning, everyone. My name is Ken Usdin. I'm the large-cap bank analyst at Autonomous. Thanks for being here this morning with us. Really proud to have Bill Rogers, Chairman and CEO of Truist Financial Corporation with us this morning. Bill has been the CEO of Truist in 2021. He's led the company's transformation into 1 of the largest banks in the U.S. with almost $550 billion of assets and a lot of growth and improvement coming along the way. Before we go, a quick reminder, if you have any questions, you can put them through the pigeon hole app, and we'll see if we can get them into the discussion. Bill, with that, thanks for joining us today.

Thanks for having me.

So Bill, maybe a big picture starting point. It's been a long year in 5 months, a lot of things out there in the world. Maybe just your big picture take on client customers sentiment in your footprint and your -- what you're seeing just from a broad economic activity perspective?

Yes, sure. So I would say, constructive. So client activity is active. I'd like to say, I think on the wholesale side, I think clients have capitulated to uncertainty in rates. So they're not waiting. So they're going ahead and making the strategic decisions and building the warehouse, buying the trucks and looking at the strategic partnerships, things they need to do, recap their company. So our activity is strong, and it's strong across all spectrums. So I think activity is positive on that side. On the consumer side, probably on the lower income side, a little more discretion. So I think I don't think it's a risk off that power continue to be, but it's a little discretion. And on the upper income side, we continue to see the trends we've seen. So consumers active, continue to be perspective and not changing their buying pattern significantly.

Yes. Just one thing on the commercial side. You mentioned that people are kind of just moving forward. Is this kind of uncertainty in the certainty and you just your customer saying we have to go forward.

Yes. Again, I think capitulating to uncertainty. I mean, I think that it is uncertain environment in many ways, but it has been an uncertain environment as your introduction for a long time. they're looking at the needs to continue to grow their business, continue to invest in their business and look at strategic alternatives and going ahead and advancing on those activities. So again, pipeline is a dialogue particularly on strategic types of investment is actually still quite strong. .

Yes. One of the changes we've seen since the beginning of the year is that the rates backdrop has stayed higher for longer. Virtus is a little bit of but you've maintained your overall earnings trajectory. So what gives you the confidence in that trajectory as we look forward ordering on the come...

Yes. I mean, Kevin, we've got Yes. So several things. We have a lot of levers. So NII under a little more stress, but in furnace in the last couple of weeks and on the long end, you sort of see some opportunities. So we go up, we have fixed asset repricing and security repricing. So that's probably a little higher opportunity on the other side. But sort of our core business, I think about our fee-based businesses, we actually see a lot of confidence in our fee-based businesses. Think about investment banking and wealth and payments for us. Much more relationship driven, much more franchise driven. We just have confidence in the ability of those businesses, long-term investments in those businesses, organic investments in those businesses highly relevant, highly competitive positioning. So while seeing a little bit of offset NI, we see a little bit of offset on the positive side on the payment side. And then just the capacity to create better RWA focus on our company create better looking at Basel and looking ahead in terms of regulatory, more sustainability on things like the back. So as we see not only sort of the short-term capability and our confidence, we also took the opportunity say, let's get some longer-term targets out there because we see more confidence and more capability in the bit improve our return, not only short term and sustain, but really long term on the things that we're building.

Yes, yes. And then as we start to talk about some of the building blocks, you talked about 3% to 4% loan growth for the year. And what are the main drivers of that growth? And as you focus on getting more higher return incremental business to the company?

Yes. So I think on the loan growth side, we are being competitive and discerning focused on return. So the quality of our loan growth is actually sort of significantly higher. So I think about -- on the commercial side, 60% of our relationships now have some type of payments business associated with them. That's significantly higher than our back book. So that's as our product, our capability, our competitiveness is really strong. . We have about 24% increase in new clients. So we're also winning new business and new relationships. You translate that on to the investment banking side of that. We're in more prominent positions related to the quality of the business and overall return is really high. So on the C&I side, we're competitive. We're focused. We see good growth on that side. On the consumer side, sort of the traditional strong consumer businesses for us, think about like Sheffield and Service Finance, we're entering into the cycle for those businesses. So think about ABC and pools and things that people are investing in back to the consumers still in the game, still positive momentum on that side. But things -- and they're client-driven higher-return businesses. Think about things like the indirect auto. We're actually just like diminishing and lowering our expectations in that business. The returns are really small. The relationship driven part of that is really small. So I think what we're seeing is like growth is where we want to have growth and growth is accretive to return, and that's where we're going to focus. And again, back to the earlier comments, that's what gives us some more confidence on these return expectations.

Got it. And let's talk about the right side of the balance sheet. You've talked recently about making progress on the deposit side, making deposit momentum and it's also not an easy environment. How do we think about the pace of that improvement, which has been some time in coming along and the key drivers that can help support better deposit growth.

Yes. So quarter-to-quarter continued improvement for us on the deposit side and deposit generation. On the wholesale side, more significant improvement. And again, back to quality operating deposits in fairness more interest-bearing than we'd like. So that -- but that's -- but their quality relationships, and they're 60% payments business. These are things that still haven't funded part of a growing operating component. So we'd rather have more noninterest bearing, but we'd rather have the relationship so being able to sustain that have sort of 2% kind of growth in the wholesale part of the deposit, we feel good about because the quality of that deposit growth is good. On the consumer side, really good deposit generation. We're sort of seeing that on our premier side. We've been investing a lot in that. So the 20% kind of plus focus on deposit generation. Again, we'd like to have more noninterest bearing, but again, good growth and good focus. We'll have more focus on expanding those relationships of products, capabilities, rewards, insights on things that we can do to expand those relationships with those clients create again, the equivalent of the consumers' operating account as well. So the quality of our deposit growth has been strong, and I think that's over time, that's the most important thing to have is the quality of the deposit rates. Rate cycles will change. And when rate cycles change, we will get more advantage from our earnings capacity and funding capacity of those deposits that we have today.

When you mentioned that you're getting more of the interest-bearing and rather more of the noninterest bearing, is that just because of the mix and just what's coming to you? And how do you evolve that over time?

Yes. A lot has been given because it's funding operating accounts. And so you sort of have that component into it. And then over time, you leverage that relationship. Earnings credit rates is a big part of that component today. That's highly competitive, sitting at the top end of that spectrum. That changes over time, you have flexibility. Think about the equivalent of the back book on the consumer and the equivalent of the back book on the wholesale side that you're constantly sort of challenging and looking at where those opportunities are. But also in fairness, also helping clients manage their deposits more efficiently. I mean their clients are much more efficient on the wholesale side from everything from working capital to supply chain to liquidity, and we're helping them with those capabilities. We're providing the tools and ultimately, the most important thing is to have that strong fulfilled deep relationship with that client. And over time, that accrues a lot of benefit to you.

Yes. And speaking of that and furthering it, you talked about Premier -- you talked about your payments and getting deeper relationships there inside the branch network, things you're working on there as well. So talk about how that's all positioning to drive better growth and how -- what are the building blocks that happened in terms of getting those pieces more connected?

Yes. So I mean if you think about like overall in terms of our franchise focus and think about the building blocks on return is really significantly leveraging the assets that we already have. And we've got a fantastic franchise. We've got fantastic clients. We have great long-tenured relationships. Now we have much better product capability, competitiveness, teammates focus, so leveraging those existing franchises for a higher return, leveraging those existing relationships, deepening those relationships. Investment banking, 40% sort of increase in the relationships that come from the franchise, Same thing on wealth, a 40-plus percent increase in the relationships that come from the franchise using the premier, using tools, AI, increasing the referral network. -- building those stronger relationships. So those are things where we've already made investments, and we're increasing the returns. Same thing on the payment side, 60% of relationships now with the payments business. significantly higher than the back book. So we're creating a return on investments that we've already made, and that's a big part of the return profile.

Yes. And or how easy or difficult is to say, but you mentioned that there's a lot more of that. Are these all in early innings, middle innings in terms of that deepening the growth shows it that there's an increment that's coming on -- but how nascent are still some of those opportunities.

I mean the confidence that we set a longer term, medium term would say that we have a lot more innings in front of us, then we feel confident about the momentum and the exponential growth of that is in terms of an opportunity.

Yes. Okay. So consumer, you mentioned Sheffield, some of your other businesses, LightStream Service Finance, some of the higher risk-adjusted return areas. Are there opportunities to lean in further there? Or to your initial points about the consumer? Do you have any concerns there? Where is the bid ask in terms of how much you want to step in further and the opportunity sets for those businesses to grow.

Yes. Remember, those businesses, particularly on the Sheffield Service Finance side, I mean, these are high FICO score businesses, high return businesses, risk-adjusted return businesses. So we're going to continue to lean in those. And in both of those, like we're market leaders. So we have a capacity to lead in those markets. We're entering into the cycle, again, sort of summer months where those businesses become more important. So I think those are areas where we continue to lean in, we feel good about the relationship aspect of those. We're building more relationships with vendors and the other support system that creates all that. So that ecosystem overall is improving in terms of return.

Yes. Do those businesses drive other throughput opportunities to other areas? Or is it more just that you get such good returns, they are still additive?

It's primarily return focus, but there is overlap. Those bend diagrams do come together. And the advent we can talk later, but the advent of tools, AI capabilities in terms of like learning how to leverage those Venn diagrams better when those overlap when a client has a relationship with us with Service Finance and maybe they also have a relationship or they sit in another part of our geography, and we can leverage those. By the way, that's like really early if you talk about ghat is very nascent that's sort of the ultimate outcome. But so for now, they really drive really good high risk-adjusted returns. And that's the sort of -- if they were icing that would be icing on the cake versus the cake itself. .

Got it. So your biggest fee generator, the investment banking and trading franchise has been growing. You've been expressed confidence in continuing to. You mentioned earlier about customers moving forward. How much of the growth that you're seeing and expect to continue to see is driven by share gains? How much of it is that product build out? And how much is just the environment.

Yes, it's several things. So remember, I mean, this is a business we've been building products and we build it organically, which we think is actually really important. We think the cultural aspect of this business and having it not as a separate business, but as a business that supports the franchise is actually sort of a really key differentiator. So and that's the emphasis. I think that's what reduces the beta over time in terms of the volatility of that business because it's driven from the franchise. It's driven from our existing clients and that focus. So that's been a key area for us. I mean we see low double-digit kind of CAGR kind of growth quarter-to-quarter, it will be up and down for any particular different reason. But predicated on the product and capabilities we've built, the talent we've built not only in the investment banking side but also in the delivery side. So our middle market client base, I mean, our middle-market teammate base, 20-plus percent of those are new to the franchise within the last year. They know how to leverage tools, they know how to leverage these capabilities. They know how to leverage these client relationships. So that's part of that building on that momentum of that business.

And in terms of market share, where do you think you are? Where do you think you can go? And is it part and also of continuing to build out the product set? Or is it more just better against...

Yes. No, no. Clearly, on the market share standpoint, I mean, we're small single-digit market share. So we have lots of upside relative to market share. We think about more market share about like individual clients and individual businesses and specialties that we have in leveraging the existing franchise in terms of that growth. So not only do I think we've got organic growth, but we do have market share expansion. If you look at Cenovus over the last 5 years, we've had consistent small market share advantage. But for us on that base, that can actually be a significant contributor. Again, the return aspects of those is important because it's against capital that we've already committed.

Yes. incremental part of your fee business coming from essentbankand trading come from lending clients? Or are you seeing more of a pivot where you're just getting the advice now and it goes reverse inquiry on to that.

It's both sides. I mean so the core business, it starts with industry specialization. So that comes from both sides. So we're important to a client in terms of our advice and our knowledge, irrespective of whether they're a client or not. So that's one aspect of the business. The other aspect is we're important to the client because we're a client -- because they're a client and they're making a decision in terms of the recapitalization of the company, the sale of the company, and we're able to come on top of that with our specialization. So it's the culmination of both and the leverage of both is what is what creates the momentum. .

Got it. And then the other large or larger and growing fee area, wealth management, where you put a lot of focus there. Talk about like how is that in the same regard? Like where does the growth come from there? Is that also adviser ads? Is it also a connection to Premier? How do you walk us through that?

And the good news, it's the same thing. It's both -- so it's one, it's slowing the attrition, which we've done significantly. So we have a really great team on the field. We provided a lot of tools and capabilities for them in terms of their efficiency and their ability to deliver great products and great capabilities to their clients. Their platform has been significantly enhancing their efficiency and how to deliver that platform has been significantly advance -- so we've invested a lot in that capability. And then on the other side of that, and you mentioned the Premier side is then creating that platform from Premier. So the insights and the knowledge that we have about that client base creates more velocity for the premier capability in terms of the referral side. We're using tools. We're using AI-generated tools to help the referral network. So we know we have a lot of knowledge. We have a lot of knowledge around when and how a client would want to be referred, what are the criteria? What are the top elements of success, how do we increase the batting average, so to speak, and then how do we create the ad Pat. So a combination of culture, talent, desire to work together incentives and now advent of a little bit of technology to accelerate that is where that's coming from. And as I mentioned earlier, 40% plus of the growth in the wealth side is coming from the existing franchise. So this investment that we're making in Premier, the insights that we're providing and the leverage of the ecosystem is proving to be part of that growth dynamic.

And the last growing incremental piece is treasury management kind of sit in the middle of all of this, more may be connected to the prior points on investment banking and the commercial balance sheet. But -- that's been a big part of a lot of regional banks growth. Could you talk just about how you're continuing to build that piece of the business out and how that's adding both the deposit taking and the overall relationships.

Yes. I mean, the last several years, a really significant part of our investment has been in our overall payments, treasury management capabilities. This is an area for Truist where we had a significant opportunity for penetration. We were underpenetrated relative to our opportunity. The good news is the ability to invest in product and capability now is a real left lane opportunity. It used to be like mainframes and hard investments and took years to create now it's APIs and other tools that you can be really relevant to clients in terms of integrated receivables, payments capabilities, real-time payments, specifically related to their industry and their business and their working capital and what's relevant to them. . So those are the investments that we've made, and that's where we're seeing the acceleration. As I mentioned earlier, 60% of the new relationships now have a payments component attached to -- so that says to us a pretty good signal that one, we're relevant -- so it matters and maybe the products and capabilities and the tools and the teammates and their prowess and their effectiveness is relevant, and our back book is a lot less than that. So that says we have a lot of opportunity to continue to expand that business and grow with our clients and be relevant to them on that part of the side.

Yes. So as a business -- kind of bring that all together from a revenue perspective, distribution between NII and fees is a little bit more NII than the longer term a 70-ish -- but with these fee opportunities, do you think that mix can change over time and become proportionately more fees? And how do you think about what the right bouncing I know rates are a big important...

Yes. I mean it will change over time. That moves slower as a percent over time, but it will change over time, and that's back to how we started this conversation. So we're seeing disproportionate growth in the fee income side. So more confidence in that in the fee income side as NII has a little more pressure, but we're seeing single-digit kind of growth in that side. It takes a long time to sort of reverse the whole percent but the return aspect of that accelerates pretty quickly. So while the percent may not change as quickly, the return element because you've already committed the capital on the side, actually accretes pretty quickly. And that's why we have the confidence in setting these medium confidence in achieving our medium-term goals but setting longer-term goals because we see that acceleration of the return aspects of this. And while the geography of something in terms of a percent or where it sits on the balance sheet or where it sits on the income statement, we're not like focused on that as we are about achieving the return objectives and are achieving core EPS growth. I think we've got really good flight paths on both of those.

Got it. And using that as a pivot to talk about return targets and operating leverage. So when you think about that path towards your higher return targets, how do you think about getting the top line to grow and then keeping the operating leverage band wide beneath it while continuing to support everything you just walked through, which is a lot of investment in the franchise.

I mean I think about the return objective is say about it is the waterfall. What are the components that you're building on the waterfall. Obviously, the biggest component is the core franchise, the NII franchise, improving them, improving growth in NII, improving growth on the balance sheet, deposit remix, that's your biggest element. Then you've got the fee-based business growth, which we talked about. Those are significant enhancements the return objective. Then going to your point, the efficiency side of that. So the efficiency side of that is a couple of hundred basis points of operating leverage, all that with creating efficiencies to reinvest in the business. So I think we've got now a really sophisticated system for next dollar to save and next dollar to invest in creating the right formula for that. We're not going to miss on an investment opportunity because the investment returns can be faster and quite frankly, the savings returns can be faster. So the efficiencies that we can achieve with the tools that we can use and think about software development or care centers or core operating business, we can achieve more efficiencies faster, but we can also have things that we can invest in faster. So that combination is where you're talking about that, and we achieved that in the overall operating leverage. And then for us, we have some tailwinds. So we have some tailwinds in repricing. So just as the short end of the curve has been a little more challenged in the long end of the curve is a little bit better. So we've got $40 billion worth of repricing in terms of our fixed asset repricing and what comes off the -- what comes out of the securities portfolio, so a little some advantages to that. Then we have some AOCI burn off in terms of that. So we have some natural tailwinds in that regard. And then the last 1 is the capacity for capital utilization, right? So with Basel III regulatory reform, pick your number, 10% or so in risk-weighted asset improvement. The things that we're doing on our own density focus, that just creates more durability in that capital return category. So there are lots of elements of that waterfall to get there. Our confidence in setting these targets is that we don't have a dependency on one, and we have a lot more flexibility within all of those levers.

And we'll keep digging on some of those as well. On the efficiency side, you and every other bank is now talking about AI as a really important enabler for the franchise for the industry. As you look at it in terms of how Truist is putting it through the tech stack, what are the most important benefits you're seeing today and how meaningful that towards the productivity and efficiency over time?

Yes. I think the first thing, and we don't think about like the AI budget. We think about AI as the propellant. AI is the accelerant to an efficiency play or the accelerate equally important to the client enhancement of the client experience and the revenue side. So that's how we think about the budget in terms of how we think about the component. Lots of obvious investments and as I mentioned before, sort of the software development care centers, general process improvement categories. But every 1 of those efficiencies, we have an ability to reinvest in the business. On the other side, so think about Truist insights, I think about the referral networks and things and we talked about the we use the technology to create more velocity and more effectiveness and more return against the revenue side of the business, all while creating an infrastructure that allows that to run it at a higher speed.

And do you think -- when you think about that creating efficiency for the investments? Is it across the board again, some goes back into people, front-office-facing people, some goes into furthering the technology product. Does it get spread out? Is it more focused? Could you think about that?

Yes, a huge part of the initiatives to simplify our businesses so we can make those -- so we have a great framework for making those decisions and making those trade-offs. We announced we were going to invest in branches. Branches have a longer-term payback -- so they're more in the 5- to 6-year payback. So we have to offset that with shorter-term investments and shorter-term efficiencies to achieve that, put that all in 1 big bucket. We can sit around the room literally in a small table. -- look at all those effective decisions and make those decisions relative to what's going to accrete the highest value for our clients, what's going to create the highest value for our shareholders and put that in a mix that allows us to make those decisions on short term, medium term and the capacity to toggle all of those, which is at the right time. So that's why -- I mean, I'm sort of always careful about saying it's going to achieve this level of efficiency or you're going to have this level of dollar savings of this because you get into apples are just complete in terms of like kind of thing about the Cornicia. And what we'd rather say is are we using all of these investments to achieve the return and the growth that we can achieve and is the potential of our company.

What about AI as a potential competitive threat and how you defend the port, whether it's in any business, really, it comes up most on the deposit side, but also comes up on other angles of payments and fees. How do you also get ready for that and prepare to adjust go up against how that evolution happens over time.

I think like any tool, it's offensive and defensive. So on the use of AI "defensively" against our franchise, the offensive side is we just had to become more relevant to our clients. Are we providing them more insights. So we're giving them ubiquitous access to all of the tools and capabilities and products. And avenues in places that they transact with them. Are we deepening the relationships that we talked about. Are we there a primary account are we there operating account? Are we the primary place -- and we've got the tools and capabilities do that. So we're -- while we see the threat, we're not sort of immune to the threat. Also, those same tools or make us highly competitive and create the individual moat with individual clients around our relevance. So clients are going to choose to be the most relevant and the most primary with who's giving them the best advice, who has their best interest at heart who's giving them the most flexibility on their account. I think that's really, really critical. In our case, who's exhibiting the right level of care and purpose and understanding and helping them achieve their life goals and helping them build better lives.

Yes. Just 1 competition question that will lead us also into a credit discussion. Your sense of just the competitive landscape across not just because of AI, but just more broadly speaking, anything new or different or novel whether it's in footprint or in some of your national businesses? Or any ways you're thinking about it differently from some of the angles you've already walked through.

It's a highly competitive environment. And I'd say most importantly, we've never been more competitively well positioned. So while it is highly competitive, there's just no doubt. And the competitors are as broad and as wide as you can possibly describe, Truist has never been more competitive. So in terms of like the talent we have on the field, the product and capabilities, the ability to leverage those, the ability to respond to our clients' needs in ways that make us effective and important to them, the ability to offer advice to them in the ways that they want to receive advice, whether it's digitally, whether it's physically. I just think we've never been better positioned for a highly competitive market. .

Yes. Understood. So talking about the broader credit environment today, it kind of dovetails back to where we started. -- what are you most focused on as watch areas? And how do you feel just about the overall health of the -- across the portfolios.

Yes. I mean if you look at some of on a spot basis, credit is quite good. and that really runs through the gamut. What we focus on is having a highly diversified franchise. I mean, I think one of the significant benefits of Truist is the diversity of our franchise and virtually any way that you want to think about it. So when we think about areas that people might focus on, whether they will pick your category, software in any category, for us, it's a small percentage of the overall portfolio because it's highly diversified. So we start with this framework that we have a lot of discipline around creating a diversified franchise. And I think that's probably the most important component terms of thinking about credit. Then as we look forward, we stress everything against that diversification. So we're going to stress in everything. We're going to stress against gas prices. We're going to stress against delinquencies we're going to stress against consumer behavior, we're going to stress against virtually anything that we can think about, all ensuring that we've got enough diversity to not only weather that, but actually prosper in those environments and create in disproportionate advantages. The watch items that we're looking at, obviously, we're going to look at anything in the consumer discretionary side just to ensure, and you can see sort of binary differences in different businesses, which is fascinate we'll look at transportation and cost of gas and what's the influence of different things. We look at different consumers, the lower income side, particularly sort of what is their different exposures? And how are they thinking of what is their payment streams, looking at sort of how they're spending money and decisions they're making. So we're constantly stressing all of those components. And again, the strength for us and looking forward is just the diversity of the overall business franchise.

Yes. And it seems like even your points about the things you're watching for, even whether it's on the lower income cohort, the delinquency trends don't -- you mentioned spot basis looks fine, but 1 looks forward.

Yes, delinquency trends in some cases, sort of slight -- it's not manifesting itself into losses -- remember also cohort has got about a 10% increase in tax refunds -- so that's -- there's some sustainability in that. But those are areas that we're just watching really carefully and closely. .

On the commercial side, you have to talk about the private credit ecosystem, both as a credit question, but also as a growth challenge and yet may be an opportunity as well. How do you see this interplay especially that you service it inside the investment bank as much as on the balance sheet as well, the interplay between banks and private credit. And how do you see that as potentially being an opportunity over time.

Yes. I mean you mentioned, I mean, we've been in this business for a long time in terms of interplay with product credit and then going back to my other comment, highly diversified. In terms of total percentage of our total portfolio, highly diversified. Within private credit as a whole, highly diversified within the whole and if highly diversified, long-term relationships that have a use of our capital markets capabilities. And so these are higher-return relationships for us. we underwrite out of a loan kind of focus. So these are clients that we've known for a long time. We have really strong relationships with -- we think we're sitting at the right structures of those infrastructures. You and I were talking about is the convergence between private credit and bank I made the comment. I think it's converging. I don't know if it's converged, but it's certainly converging where you're going to -- I think we'll see some more opportunities on the bank side. I don't think that's going to be a groundswell of change. But but you see some of that converging where clients who maybe had typically gone sort of private credit. Now we're also considering some of the other options, particularly as it relates to some of the funding differentials and the pricing differentials as the as those 2 things converge is pricing converge and structures converged. Those are probably closer than they were a year ago.

Yes. Yes. seemingly, the banks will still be willing to grow it. And I think coming out of the April quarter, there was a lot more disclosure and confidence in the quality of the underwriting and the portfolios. Coming back to the return side, talk about capital a little bit. Obviously, we've got the proposal for the Basel III rules, a positive outcome for Truist and for other regional banks. First of all, if it goes through as is any issues with that? Do you anticipate any changes happening as we get through a final rule?

Yes. I mean, as you mentioned, I mean, a positive overall outcome for us. We have the capacity and capability to select so whether we want to go Erba, whether we'd say we have the optionality to select where we want to go. I think the general corpus of where this is. It seems like this is going to get through, whether it's end of this year versus next year, I don't know. So the timing is a little in flux. . But back to our earlier comment, I mean, that's just for us is another level of flexibility and the level of capacity another level of durability long term for us in terms of capital return.

When you think -- you mentioned the 10% CET1 level is kind of in your baseline expectation. And so as you get this extra help down the line, it will take some years to get to it, as the AOCI continues to cure from the securities portfolio. How do you start to at least think about the possibility of like, well, maybe 10% is not the right level. you obviously have a much lower regulatory requirement. So that's a pretty healthy buffer to even keep today. Is that a potential thought process as you think further field?

Yes, I think that's a longer-term thing to think about it. I mean we've been pretty clear to say within what we've outlined in terms of return expectations, we've assumed somewhere around a 10% CET1. I don't want to speculate whether that's conservative or -- but there may be future opportunities there. And again, back to our earlier comments, given the diverse nature of our franchise, the I think an appropriate risk balance of our franchise that could be an opportunity. [indiscernible] that could be we'll have to look at where rating agencies fall. We have to look at sort of the competitive environment, quite back to where we are in an economic cycle, all those things, all those variables will exist. So we think for today, being able to say, we can achieve these return objectives. And we're not assuming that we have to have an additional capital accelerate from a lower CET1 base should give us a lot of confidence in their ability achieve those returns.

One of the points you mentioned earlier, you talked about RWA optimization. Can you talk about what that means at Truist and what's new or different about that from the past?

Yes. I mean if you think about when we came together you add dozens and dozens of ways to think about it, like how to classify loans, where should they be? What are the categories. So we have a really -- and if you look at sort of us relative to others, we're a little more dense on the RWA, then I think we should be relative to our portfolio relative to how our company looks from a risk-weighted asset standpoint. So -- we've brought in some help to help us think through this, help us be really sophisticated. Sometimes this is as simple as these loans should be classified this way. We have systematic way of doing that versus an individual making a choice. Others are things like our CLM portfolio, how do we leverage, how do we take things like some of the indirect auto portfolio and create more velocity around that? our Service Finance business, remember, we have it as a balance sheet business, but it grew up as a non-balance sheet business. So we have the capacity to think about that as well in terms of how we maximize those opportunities. So it's combination of a lot of different things. And I think part of the return profile for us is if you look forward for us, our growth is going to come with a lot less RWA growth. And that's significant element of this improved return profile for our company over time.

Yes. And to that point, so -- you talked about getting to a 15% or TCE in '27 and then longer term getting to 16% to 18%. Maybe just kind of take us through that waterfall and talk about the -- maybe your stack router of kind of what the biggest drivers are to get to that next leg?

Yes. Well, the biggest drivers are the business drivers. So the improvement in the overall mix, the improvement in the funding -- wholesale funding reducing the wholesale funding, increasing our deposit mix, improvement in growth in the loan side and the deposit side. I don't have them be better match. As the big bulk and then we go to the noninterest income components of the business, and we go to the efficiency plays and we go to the capital plays of all the things we talked about and the tailwind that we talked about and so those are the -- we've got several building blocks in that return profile. Again, don't have 100% dependency on any of those. They all have levers and flexibility and back to the Basel III that just provides, I think, more sustainability and more durability on the capital actions that we can take. .

Got it. One question that's come in, I think there's a good one. Can you talk a little bit about cybersecurity which is a threat to all banks, especially given the Mythos threat. Is there a risk that you and other banks will have to ever increase your tech budgets to deal with this rising risk that the whole industry faces?

A significant part of the efficiency that we get is reinvested in our cyber resilience. Yes, the answer is yes, that part of our budget is going up. It will continue to go up, but that has been offset by efficiencies in the other plays and the operating leverage that we achieved. So I think people understand, but our industry is I think, probably relative to other ties the most cooperative. I mean we have a weakest link view in our industry, you think about the FSI SAC and all these components. So we're all in this together. And -- if you think about the systems that we use outside of our core systems, these are common systems to all banks, and we all have a really strong vested interest in making sure that our second, third and fourth party relationships are really strong. The standards for them are going to go up exponentially in terms of their resiliency, their patch and capabilities, the expectations for that. And that will come not only from us but come from the industry. So we're all again, leaning in collectively to affect them. So I think it's an area that we have an extreme area of focus, continue to invest. The good news for us, if you think about the last 3 to 4 years, that's one of the areas that we've invested in significantly we thought about doubling the size of our company, we had to similarly create an infrastructure and a resiliency and a defense mechanism that reflected that. So we've been in a high cycle of investment on that, and that will maybe not at the same level, but that will continue.

Yes. And that reminds me know the question that's come up a bunch, which is that the industry has rallied at important moments like on cyber, creating Zelle as a competitive alternative to other mechanisms. The deposit -- this comes up a lot in terms of deposit discussion and the new tools that are coming up? And how do you think the bank and the industry will prepare against whatever the outcomes are as all these new digital tokens stable agents come about and you prepare for just getting defending the fog, so to speak.

Yes, I think you highlighted. I mean I think we would say as an industry, we were slower on Zelle as a response than we should have been, but you look at the response now in terms of the growth of Zelle and its influence and its importance, like significant. And that was a total industry, everybody's shoulder had. I'm optimistic and I think we'll be faster as an industry and responding. So I can see industry-wide tokenized deposit view. And I think we all have a new that -- you know that the clients' assets and deposits belong to them. They don't belong to us. We have to create the platform that is a platform that has the safety components and the regulatory components confidence components that reflect not only our bank but our industry. And we're fully invested as an industry, certainly truest fully invested as an industry to create a confidence-based ecosystem that has a bank infrastructure to it. And then ultimately, while I think the velocity of all that will increase. If you enter this with the concept of we're going to provide really great products, really great advice, really great capability. you should be the beneficiary of that velocity and not be defensive and not be fighting it, but be proactive and leaning in to make sure that you're going to be -- as the options increase, you should be the best option. And that's the approach we're taking as a company, and I think that's the approach we're trying to take as an industry.

Got it. So as we wrap up and just think about everything we talked about, talk more just kind of wrap us up on just your overall confidence here that you're laying out here in terms of both the potential for stronger growth, higher returns improve profitability. How do you kind of take us forward and give us that confidence? You mentioned that's been kind of a journey since the original merger of the 2 companies and bring this all together to us in terms of where we should be looking forward and seeing that improve success for Truist.

Yes. And I think by my earlier comments, if we think about the starting point where we are, we have some natural tailwinds. So like there -- we are where we are. We have some natural tailwinds. But then on top of that, we've never been more competitive than we are right now. So the investments that we've been making in product and capability and teammates and talent against an incredible franchise, an incredible opportunity. I think just we're sort of extremely well positioned. And then back to our earlier comments, we also have a lot of levers. -- to have a lot of -- we're not -- we don't have a 1 dependency. We have a lot of levers and the environment today, I think, affords us an opportunity to navigate within those levers, which why we have the confidence of establishing this longer-term goal. And while it won't be a straight line, it will be aligned. I mean, we're going to see constant improvement on a quarter-to-quarter, half year to half year, year-to-year and building that momentum. So the geography, as I mentioned earlier, probably not as important as do we have really core good, strong EPS growth from where we are today. I think we feel really, really confident of that. And do we do that against a higher return expectation as we go along. So we have really good EPS growth and we have that against a really higher return profile.

Got it. Great. You join me in thanking Bill for his time in our session today. Thanks, Bill.

Thanks Ken.